Tuesday, 11 July 2017

Ethereum Mining

All the kids are doing it. I've been doing it too for a while with 3 cards. And it's a total waste of money. Don't do it! Don't bother! Stick your money in something else, BUY Ethereum if you must!

The problem is that we're all fighting over the same piece of pie. The more miners, the smaller the share. And before you shout "You just want it all for yourself!" and pull out the pitchforks, let me explain why it's too late, and why I'll shortly be stopping.

Rewind back to late May 2017 when the price shot up to $200. I assume a larger contributing force behind this were investors in Japan and elsewhere in Asia realizing that bitcoin was technically less capable than it's newer cousin, Ethereum. Several Asian exchanges started supporting it. Japan introduced a law legitimizing crypto-currencies and the rest was greed feeding greed.

Of course, I joined the bandwagon. I got in around here and shortly after the price shot up to $400. At the peak, my little 3 card setup was making me almost $20 USD a day. It's around this point that I imagine everyone doing this pats themselves on the back, tells themselves how clever they are and does an entirely unrealistic projection of how much money they are going to make.

Since then, the value has dropped back to ~$220 USD but the miners haven't stopped. They've been piling on like crazy. News of GPU shortages have only piqued interest and fueled the fire further. What these punters are forgetting to factor in is not just the price correction, but the difficulty increase. I thought I was clever. I thought I had factored it in but my projections were off. It turns out the world is far sillier and greedier than I expected.

Ethereum, like all proof-of-work crypto-currencies, targets a certain "block rate". This is effectively the rate at which blocks of the transaction ledger get signed off on. To avoid any old person declaring their ledger is the ledger, miners spend a lot of time working on solving a complex computing problem. The one that solves it gets their name attached to the ledger and 5 ETH for their trouble. The network is designed so that this happened with a median time of 15 seconds.

To simply that even further: Every hour, roughly 1200 ETH at $225 each ($270kUSD), is up for grabs for miners.

It's easy to see why a gold rush was inevitable. But....

See that little red box on the difficulty evolution. Thats a bump of over 100 trillion in difficulty. At 33MH/s hashing rate (a single GTX1070 graphics card), that's equivalent to 30 million cards jumping on the mining bandwagon... overnight! Yes, there is some statistical error in there, but in any case it's a big increase!

Current returns are only a few dollars a day and electricity needs to be factored into that. Paying back your $500 graphics cards is going to take you an eternity if current trends continue.

What happened, I suspect, is that some early big investors bought ETH and then realized the markup they were paying and have decided to mine instead. Meanwhile, ICOs rode the hype, sucking money out of the system by driving up demand and then cashing out. There have also been exchange hacking and network capacity issues that have scared people off.

I have seen photos of shops that churn out hundreds of rigs with thousands of cards at inflated prices. These are making the news and gullible first timers are jumping in without understanding the ecosystem. The clever money at the moment is in selling the shovel to the gold miner I assume...

I imagine there are a lot of people out there that have invested in this with cards on back-order so there is a delay in adding capacity to the network but already we're dangerously cost to returns dipping below the cost of electricity.

For me, I was going to burn the electricity on heating anyway so I'll continue through the winter and then sell it all off. It was an interesting flash in the pan, but still just a flash.